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Determining Bargaining Power in the Platform Economy

Our political system has been hacked by time, circumstance, chaos, and disaster, says UC Berkeley Economics Professor Brad DeLong. He pointed to the failings of the electoral college, the fact that “small states hacked the constitution in 1787, so we now have a world in which the minority in the Senate represents 175 million people, while the majority represents 145 million people”, and the gerrymandering after the 2010 census as the primary examples of this dysfunction. DeLong’s recommended fixes for the economy include a 4 percent inflation target from the Federal Reserve, incentivizing businesses to invest in workers, and reinvigorating the idea that technology should be used to augment workers, not replace them.

When it comes to the platform economy, DeLong believes that “the possibilities for positive human flourishing from the platform economy are immense, provided the platforms actually work.” He points out the fact that Uber’s investors are currently paying 40 percent of Uber’s costs—what happens when these investors start wanting their money back, DeLong asks? Another challenge of the platform economy is that it moves bargaining power away from the service providers and the customers, and into the hands of the platforms. This too is a problem faced by independent workers, DeLong notes. The power these workers do have is correlated to the time and resources devoted to training them—”when you walk you disrupt a general production value chain and it’s expensive to figure out how to replace you, even if there’s someone else who certainly could do the job just as well.” Despite these fairly sobering insights, DeLong says he sees himself as a techno-optimist. “It’s hard not to be a techno-optimist in California if you’re an intellectual person who loves information,” DeLong says.

Highlights

On the platform economy: Does it move bargaining power away from producers and customers?

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11:30

Brad lays out his recommended fixes for putting our economy on a healthier path forward

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ThaomasH

“Augment” rather than “replace” sounds good, but what would it mean? Is it not just “replace + increase output?”

Why not a X% NGDP target? Or does this mean a 4% inflation target as the “stable prices” blade of the Fed’s mandate? How does a higher inflation rate target help if the Fed is unwilling to achieve it as it has been with the 2% target?